Document: TVA Strategic Considerations

Franklin L. Haney

Education: A graduate of the University of Tennessee at Knoxville and George Washington University School of Law

Position: Developer, attorney and founder of FLH Co. in Chattanooga and Washington, D.C.

Political career: He worked for former Tennessee senators Herbert Walters and Albert Gore Sr.0 before running unsuccessfully for Congress in Tennessee's 3rd Congressional District in 1966 and for Tennessee governor in 1974. He and his family and company are among the top Democratic donors, contributing more than $2.3 million to campaigns over the past two decades, including $1 million for the re-election of President Obama.

Business career: He has built numerous government office buildings to lease to the Tennessee Valley Authority, the IRS and the Federal Communications Commission, among others. In 2005, he made an unsuccessful bid to purchase the Washington Nationals baseball team.

Personal: He and his wife, Emeline, have four children, and live in Manalapan, Fla.

Bellefonte by the numbers

* $6 billion: Amount spent on Bellefonte since construction began in 1974.

* $7.4 billion to $8.7 billion: TVA's new estimate of price to complete Bellefonte Unit 1, up from $4.9 billion two years earlier.

* $65 million: Amount to be spent this year to maintain Bellefonte for possible future generation, down from $182 million spent at the plant last year.

The battle over Bellefonte

Pros and cons of Haney proposal

Advantages:

• Allows TVA to recoup more than $6 billion it has invested in Bellefonte Nuclear Plant and create thousands of temporary construction jobs and hundreds of long-term jobs at the plant in Jackson County, Ala.

• Provides TVA $10 billion of outside private financing to finish the two units at Bellefonte without TVA having to borrow the money and push up against its $30 billion debt ceiling. TVA is already nearly $25 billion in debt.

• Allows the private owners of Bellefonte in a lease-back arrangement to take advantage of up to $2.2 billion of available federal tax credits for advanced nuclear power generation. As a government agency, TVA can't get those tax breaks.

• Gives TVA a carbon-free source of generation to help TVA avoid having to spend up to $8 billion to clean up aging coal plants.

• If structured as Credit Suisse proposes, TVA could immediately cut power rates.

Disadvantages:

• TVA incurs additional long-term financial obligation to finish Bellefonte with an uncertain price tag and at a higher borrowing cost than what TVA could borrow the money from itself.

• TVA doesn't need the power from Bellefonte and completing a 40-year-old nuclear plant that was once partially gutted and has never been licensed may prove too difficult or costly.

• Replacing coal plants with Bellefonte doesn't provide TVA power generation where it is needed. TVA would have to build hundreds of miles of high-voltage transmission lines across the valley if Bellefonte replaces scattered coal plants.

• The production tax credits Haney is seeking require the plant to be finished before it is needed or under a rushed timetable. As a government-owned and -backed utility, TVA also would open itself up for more congressional criticism if it uses tax deals to help private financiers.

• TVA says it would have to raise rates over the long run to repay the extra borrowing expense of building Bellefonte, even if it is not part of TVA's statutory debt.

The two cooling towers at TVA's Bellefonte nuclear power plant in Hollywood, Ala., tower 500 feet above the ground

Photo by
Staff File Photo/Times Free Press.

In an era of sluggish power demand, cheap natural gas and rising construction costs for nuclear power, Franklin L. Haney may be the only American pushing to try to personally finance a new atomic reactor.

But as he has throughout his life, the 73-year-old attorney sees opportunity where others see only problems. And he doesn't quit.

Last month, the Tennessee Valley Authority seemed to shut the door to Haney's latest $10 billion proposal to help TVA finance completion of one of America's last unfinished nuclear plants -- the twin-reactor Bellefonte plant in Northeast Alabama.

TVA officials say they don't expect to need the power from Bellefonte any time soon, even after the utility shutters another eight coal-fired generating units over the next couple of years. A new cost estimate from TVA to finish Bellefonte is nearly double previous projections and appears to render the nuclear plant cost prohibitive, at least in the current environment.

"The proposal [from Haney] is not operative," TVA President Bill Johnson said last month after reviewing the plan.

"I wouldn't say anything is ever off the table, but at the moment the proposal does not match up with the plan that we're working."

But Haney, who first proposed a plan to help the federal utility privately finance completion of Bellefonte more than a decade ago and has spent millions of dollars on the idea, isn't about to abandon his proposal.

"I never give up on anything if I believe in it and eventually I think that right will win," Haney said.

Haney is convinced TVA's current management is simply wrong about the need for and cost of finishing Bellefonte. The wealthy financier and longtime political donor has employed some of TVA's prior top leadership and a former congressman to help make his case.

Haney has teamed up with former TVA Chairman Dennis Bottorff and TVA's former chief operating officer, Bill McCollum, to pitch a unique type of lease-back arrangement to finance completion of Bellefonte, which has been stalled for 25 years. The public-private partnership proposed by Haney would help TVA finish the half-built plant without exceeding TVA's own Congress-imposed debt cap.

The $10 billion deal also would help Haney and other private financiers qualify for more than $2 billion of federal tax credits. As a federally owned corporation, TVA doesn't qualify for the tax breaks Congress created to spur the next generation of nuclear power. But Haney can.

To sweeten his deal, Haney worked with financial consultants from Credit Suisse in New York to develop a financing schedule for replacing old coal plants with the new Bellefonte reactors in a way that allows TVA to cut industrial power rates up to 30 percent immediately and roll back TVA's 1.5 percent overall rate increase imposed this fall.

TVA says Haney's numbers just don't add up, because the utility would still have greater long-term financial obligations under Haney's plan. Cheaper natural gas also could provide a better generation option than finishing Bellefonte, at least in the near term.

Critics also chide Haney for trying to use his political influence to pressure the Obama administration, TVA's major customers and Tennessee Valley lawmakers to back the deal.

"This is not a time for political and parochial deals," said Stephen Smith, executive director for the Southern Alliance for Clean Energy, who contends Haney and Bottorff are using their influence to personally make money off TVA.

Haney has faced such criticism before in Congress, the media and the courts over other lucrative government deals he has done. But after nearly a half-century in business, Haney has built a multibillion-dollar business empire that allowed him to buy a $23 million mansion once owned by the Hearst newspaper dynasty in South Florida where he now lives -- when he is not sailing on his $50 million yacht.

"I'm semi-retired and I'm not doing this because I need the money," Haney said. "If it's not done, I think people will look back 10 years from now and wonder why they didn't listen to this idea and finish Bellefonte when they could."

•••

Haney, a one-time Bible salesman who worked for two former U.S. senators from Tennessee before launching his own development business in Chattanooga, has seized upon the tax code and government contracts to make millions through his career.

After running unsuccessfully for Congress in Tennessee's 3rd Congressional District in 1966, Haney started his own real estate development business. TVA became one of his first tenants when Haney built his first office building in downtown Chattanooga.

Over the years, Haney has leased more than a half-dozen properties to TVA. Haney took that model to Memphis, where he built and leased a major office to the Internal Revenue Service, and to Atlanta, where he secured a major Social Security Payment Center lease.

In 1974, Haney tried his political fortunes again, running unsuccessfully in 1974 for Tennessee governor. Even though he was the biggest spender among a dozen Democratic candidates -- primarily using his own money -- Haney lost to Ray Blanton.

Although he has not personally sought elected office since, Haney has remained politically active in his business career and remains one of the country's top Democratic donors. His political contributions landed him in court in 1998 when the Justice Department charged Haney with 42 counts of illegal contributions to the Clinton-Gore campaign and two senatorial campaigns. Haney was charged with improperly reimbursing donors for their contributions to circumvent a limit on individual donations, but in July 1999 a Washington, D.C., jury acquitted Haney of all charges.

Many of Haney's offices -- and other hotels, apartments and commercial properties -- relied upon tax-exempt industrial revenue bonds for financing. Haney is one of the largest individual users of such bonds. He used them and other tax-advantaged instruments so widely in the 1970s and 1980s that the IRS even referred to one of the rules it promulgated to limit a tax break as "the Haney rule."

In Washington, D.C., where he opened his FLH Co. headquarters in 1994, Haney bought and leased more than 1 million square feet of office space in the Portals Office Complex. Haney also helped privately finance the multibillion-dollar Dulles Greenway Toll Road in suburban Virginia.

"I got to where I am today because I create things that people who have any sense go along with," Haney said. "I see opportunities and take the risks, but in the end TVA or others I work with benefit."

In all, Haney boasts on his company website that his combined development portfolio includes more than 15 million square feet worth more than $10 billion.

Haney insists he has made most of his money in the private sector. But he has remained politically well-connected. He and his family and co-workers have made more than $2.3 million in political contributions, and Haney was one of the top donors last year to President Barack Obama's re-election campaign.

Haney's 84-year-old house in Palm Beach County is just down Ocean Boulevard from a $6.6 million vacation home owned by Bottorff, whom Haney has long known and who he teamed up with to pitch his newest financing plan to TVA.

Critics contend Haney has used such influence to push his deal with TVA, including trying to persuade Obama administration budget planners to put into the president's budget a proposal to study privatizing some or all of TVA.

Haney dismisses talk about any undue influence.

"I am a close friend of the president, but I couldn't influence OMB [Office of Management and Budget]," he said. "I never talked with anyone at OMB about this, and this deal stands on its own merits."

•••

Haney concedes that few would pursue a deal to privately finance a nuclear plant when the people who are going to buy the power say they don't think they will need it.

"But I'm from the Tennessee Valley and I've looked at this closely and I know those who don't think this will work are wrong," he said.

TVA projects its power demand will grow only about 0.7 percent a year over the next decade after falling for the past four years. But Haney contends the Tennessee Valley has and will continue to prosper and outgrow the nation as a whole if TVA maintains and expands its affordable electric rates.

"When I was a youngster, we didn't have electricity and I remember when TVA ran its power lines to our house and I had the first ice cream in our little two-room house we lived in," said Haney, a native of McMinn County, Tenn.

"TVA has done more to help the valley for people like me who started with nothing than anything else. I know and appreciate TVA and I know they're going to need this power."

But with a $30 billion debt ceiling for its own borrowing authority, TVA would be challenged to complete Bellefonte at a projected cost of more than $11 billion without getting Congress to raise its debt cap. In the current congressional debate over the federal budget and the pending overall debt ceiling approaching again by February, TVA's $30 billion borrowing authority seems unlikely to be raised. That leaves TVA with only about half of the borrowing authority it probably needs to finish both Bellefonte units.

As private financiers, Haney and Bottorff could fund an arrangement with TVA for the utility to get Bellefonte power without incurring the debt on TVA's balance sheet. The private financiers, unlike TVA, also could qualify for production tax credits Congress approved nearly a decade ago to help revive the moribund construction of new nuclear plants and to spur new and better plant designs.

"This won't cost TVA one penny, but there happens to be $2.2 billion of tax credits if you build these plants that nobody is competing for," Haney said.

•••

Like a winning player at Whac-A-Mole using his mallet to beat down each problem that pops up, Haney has managed to keep his dream alive where others might have given in. He has had to get both the IRS and the Department of Energy to certify that a TVA-controlled Bellefonte would still count as next-generation nuclear power even though most of the plant was designed in the 1960s and 1970s and, even if privately financed, will be effectively controlled by TVA.

As a federally owned corporation, TVA doesn't qualify for the production tax credits Haney wants to take advantage of to help fund the Bellefonte project.

"We went to the IRS and spent a lot of time and a lot of money to get them to sign off [on the private financing for a public utility project]," Haney said.

At the Department of Energy, which must certify Bellefonte as a next-generation, advanced nuclear facility, Haney got top officials to agree to such a categorization to secure the tax credits.